The recent graduate’s guide to navigating credit


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After the tassels have been turned, diplomas collected and final exams turned in, navigating your next steps can be daunting, especially when it comes to your finances.

As you take on more “real world” responsibilities, like buying a car, leasing an apartment or taking personal loans, your financial situation can change rapidly, and it won’t take long to realize how critical a good credit score is.

Your credit score impacts the types of loans you can qualify for and the amount of interest you’ll pay over the next several decades, which is why it’s essential to start healthy credit habits sooner rather than later.

Here are some things you can do now to begin your path to excellent credit:

Get familiar with your credit report

First thing’s first: Check your credit report to find out whether you already have a documented lending history.

According to credit expert John Ulzheimer, formerly of FICO and Equifax, the credit profile of a student or recent grad is often made up of student loan accounts, open credit card accounts and any credit card accounts on which they were designated as an authorized user.

Look for any combination of these on your report, but also prepare for any negative information that may appear. If you forgot to pay your cell phone or utility bill and it was sent to a collection agency, for instance, that could have a negative impact.

“College students and young people tend to be more nomadic,” Ulzheimer says. “So it’s not unheard of to see young people with collections on their credit reports because they didn’t get a final bill or they neglected to pay a final bill when they relocated from one place to another.”

Even accounting for these common factors, you may still find your report limited or discover you have no documented credit history.

Start building

If you’re starting with a clean slate, look into products specifically designed to help build credit.

A common way for young people to build credit is to become an authorized user on someone else’s credit card account. Just make sure you choose responsibly, as you don’t want someone with bad credit habits to fill your report with negative information.

Secured credit cards are another popular option for credit building. These cards require a deposit that acts as a credit limit and often have minimal rewards, but they’re a great way to establish a positive payment history.

Of non-secured cards, retail and gas cards are usually among the easiest to qualify for with minimal credit. They often have low credit limits and high interest rates, so be extra careful not to overspend or risk carrying an expensive balance.

Anyone who is new to credit should also “[k]eep an especially close eye on fees,” says Ted Rossman, industry analyst at “When you’re just starting out, you have less money to spare, so be particularly cautious about interest rates, annual fees and other charges.”

Consider switching to a different credit card

If you began building credit with a student credit card while in school, consider applying for a new card that aligns with your changing needs. Student cards are often limited by student-focused rewards and lower credit limits, but there is a wide world of available options.

Cash-back cards are popular because their simplicity allows you to earn great rewards without too much effort.

“These are especially well-suited to new grads, because they’re still finding their financial footing, and young adults may not spend enough or travel enough to make premium cards worth it,” Rossman says. “But a no annual fee card that gives 2 percent cash back on everything could give a nice break on everyday expenses.”

Cash-back options (with no annual fee) that Rossman recommends include:

  • Citi® Double Cash Card, which offers unlimited flat 2 percent cash back (1 percent as you buy, 1 percent as you pay).
  • Wells Fargo Propel American Express® card, with 3X rewards on dining, travel (including transit and gas stations), select streaming services and other popular categories, plus 1X rewards on everything else.
  • Bank of America® Cash Rewards credit card, which allows you to choose your 3 percent rewards category (gas, online shopping, dining, travel, drug stores, or home improvement/furnishings), earn 2 percent back at grocery stores and wholesale clubs (up to $2,500 in combined quarterly spending on choice category, grocery stores and wholesale clubs) and 1 percent on everything else.

It’s also okay to hold onto your student card if it works for you and your issuer allows, Rossman says. Before applying for any new card, take some time to understand the categories in which you spend most so you can ensure your rewards align with your needs.

Keep your old accounts

The length of your credit history is an important credit scoring factor, and the longer your history, the better.

A student credit card account that’s already been open for a few years can be a positive factor in the length of your credit history. That card also affects your utilization ratio, because it contributes to your overall credit limit. If you want to make the switch from a student card to another credit card, Ulzheimer recommends starting with a conversation with your current card issuer.

“The issuer would like you to have a card in your wallet with a much higher credit limit than a credit limit that is generally issued for a student card,” Ulzheimer says. “So the first thing I would do is ask if they have a program where someone converts their student card to the non-student version.”

If your issuer doesn’t grant you a product change, consider still keeping the account open, as long as you’re not incurring any fees.

Establish a positive payment history

If you took out loans to help pay for school, they likely make up a significant portion of your credit report as a recent graduate, which is a good thing, according to Ulzheimer.

“With student loans, you may have multiple loans appearing because of the number of disbursements you took over your college years,” Ulzheimer says. “So as long as you’re making your payments on them, you’re going to have multiple accounts that are in good standing. That’s healthy for you, because you’d like to have more volume on your credit report with positive information.”

But that also means that keeping your payments in good standing is imperative. Stay diligent in your repayment plan so you don’t make a mistake that can negatively impact your credit score.

The same goes for your credit card payments. Carrying a balance is dangerous in itself and can leave you with additional interest costs (which now averages close to 18 percent). Always make sure to at least meet the minimum payments on your card, since negative payment information can hugely impact a thin credit profile.

Instill good habits now

In essence, your credit report is a record of how you manage borrowing money, and establishing a solid foundation now can help you accomplish your financial goals in the future.

“You are eventually going to want to borrow money from someone and that someone will want to see a really healthy credit report, or you’re going to get denied or disadvantageous terms,” Ulzheimer says.

Establish good credit by making timely payments, opening only those lines of credit you’re able to pay in full and monitoring your report for any negative changes so you’re prepared when you do want to take out those more impactful loans or credit lines.

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